TaxTMI 
TaxTMI 
1983 (10) TMI 266
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.... on jute manufactures, in terms of the Jute Manufactures Cess Rules, 1976 dated 18-2-1976, issued under Section 30 of the Industries (Development and Regulation) Act, 1951 (65 of 1951), at the rates specified in Ministry of Industries and Civil Supplies (Department of Industrial Development) Order No. S.I. (141) E, dated 25-2-1976, and subsequent orders to the same effect. The short point is whether the excise authorities were justified in seeking to collect cess in terms of the above provisions on jute yarn manufactured by the appellants and used by them for the manufacture of jute manufactures such as hessian and sacking. 3. To facilitate a proper appreciation of the points at issue, it would be useful to reproduce the various relevant provisions. Section 9(1) of the Industries (Development and Regulation) Act, 1951, which provides the basic authority for the imposition of the cess, reads as follows :- "9. Imposition of cess on scheduled industries in certain cases. - (1) There may be levied and collected as a cess, for the purposes of this Act, on all goods manufactured or produced in any such scheduled industry as may be specified in this behalf by the Central G....
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....re to these rules of all stocks of jute manufactures manufactured, and removed from, his factory during the previous months." 6. Order No. S.I. (141) E, dated 25-2-1976 specifies various descriptions of classes of jute goods and the rate of duty of excise (that is, cess) thereon, expressed in rupees per tonne. The rate of duty on hessian and jute fabrics other than sacking has been specified as Rs. 4.50 per tonne, and on sacking and jute yarn as Rs. 3.75 per tonne. In the subsequent notifications dated 14-2-1977, 7-2-1978 and 26-2-1979, issued from time to time, the rates were revised or continued, but no material change was made so far as the question now before us is concerned. 7. Appearing before us for the appellants, Shri Khaitan drew our attention to certain judgments of the Calcutta and Patna High Courts which are of direct relevance to the question before us. He fairly pointed out that the judgments of the Calcutta High Court were in favour of the Department's stand, while that of the Patna High Court was in favour of the assessees. The present appellants were not parties in any of the above cases. The first judgment of the Calcutta High Court was the one in....
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....e the Calcutta and Patna High Courts, it is not necessary to refer to them, except incidentally. 10. As regards the first ground, namely that cess could not be levied on jute goods captively consumed. Shri Khaitan relied very strongly on the judgment of the Patna High Court in the case of Rameshwar Jute Mills Ltd. In para 4 of that judgment the following observations have been made :- "it is clear that the cess shall be levied at the time of delivery of goods at the place of manufacture and at the time of removal therefrom. In my opinion, the word "therefrom" means from the factory." Later on in the judgment, it was observed as follows :- "Learned counsel for the respondents further contends that as soon as the manufacture of twines and yarn is completed and if they are removed from one place to another within the same factory, it amounts to removal of manufactured goods. I am unable to accept this contention for the reasons mentioned above. I am of the opinion that if the definition of "factory" is read along with the "explanation" to Section 9(1) of the Act, it is clear that the cess is not leviable unless the manufactured goods are removed outside the precincts ....
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....f the notification, namely 18-2-1976. Subsequent amendments to those rules, even if given retrospective effect by legislation, could not have the effect of amending the rules in so far as they were applicable to the levy of the cess. In this connection he quoted the judgment of the Supreme Court in the case of M/s. Mahindra and Mahindra v. Monopolies and Restrictive Trade Practices Commission, reported in AIR 1979 S.C. 798. 13. Shri Khaitan also argued that Section 9(1) of the Industries (Development and Regulation) Act refers to both the imposition of the cess and the removal of the goods. No doubt, the main part of the section provides that a cess may be levied and collected on all goods manufactured or produced in any specified schedule. However, in view of the reference to "removal" in the explanation, which has to be read as an integral part of the section, it should be considered that the charge of duty was not on manufacture alone, but only where there was both manufacture and also removal. 14. In was put to Shri Khaitan that the word "removed" occurring in Rules 9 and 49 of the Central Excise Rules, even prior to their amendment, had been the subject of inte....
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....the manner in which the cess should be collected. It could not undermine the substantive provision in Section 9(1), which related to the imposition of the cess. That provision was very clear that the cess may be levied "on all goods manufactured or produced in any....... scheduled industry.....". There was no condition that removal should also be necessary. 17. Smt. Zutshi referred to the argument of Shri Khaitan that the provisions of the Central Excises and Salt Act and judgments delivered with reference to that Act and the Rules thereunder were not applicable to the cess imposed under the Industries (Development and Regulation) Act. She pointed out that Section 9 of the latter Act itself made it clear that the cess was a duty of excise. Accordingly, the various procedural provisions relating to the collection of duties of excise would be equally applicable for collection of the cess. 18. Smt. Zutshi then cited the judgment of the Delhi High Court in the case of J.K. Cotton Spinning and Weaving Mills and Another v. Union of India and Others, reported in 1983 E.L.T. 239 (Del.). In this judgment, the validity of the retrospective amendments to Rules 9 and 49 of the ....
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....cutta and Patna High Courts. As these were not among the grounds raised before us, it is not necessary for us to comment on them. 21. As regards the second ground argued by Shri Khaitan, Smt. Zutshi submitted that Government were fully competent to impose cess on jute yarn as well as hessian/sacking as they were different goods. 22. Smt. Zutshi concluded by submitting that the two judgments of the Calcutta High Court were clearly against the appellants, and that the fact of an appeal was pending in the Supreme Court would not change the position. 23. We have given our careful consideration to the arguments advanced by both sides. We observe that Shri Khaitan has fairly not agitated before us those points which he agrees as having been clearly decided against the assessees by the Calcutta High Court and has confirmed his arguments to two main grounds. 24. In regard to the first ground, namely that captive consumption would not constitute removal, Shri Khaitan has advanced a number of interesting arguments. As already mentioned, he has relied heavily on the judgment of the Patna High Court, which no doubt is in favour of his stand. We, however, observe....
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....y on the retrospective amendment of Rules 9 and 49 with reference to the levy of the cess. 26. This, however, does not dispose of the matter. We have studied with great care and utmost respect the judgment of the Patna High Court in the case of Rameshwar Jute Mills Ltd., and it does support the contention of Shri Khaitan. Since, however, the judgments of the Calcutta High Court have taken the contrary view (although not in such explicit terms), we have to decide which of the two views would be applicable to these cases. (It is relevant to note that the present appellants were not parties to either of the court cases, nor indeed are they situated within the jurisdiction of either the Calcutta High Court or the Patna High Court). 27. In this connection we pointed out to Shri Khaitan that there are a number of judicial decisions of other High Courts regarding the interpretation of the terms "removed" and "removal" with reference to Rules 9 and 49 of the Central Excise Rules. This is without reference to the question of the subsequent retrospective amendment of these Rules. There is no indication in the judgment in the Patna High Court that reference was made to any of ....
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....as the two judgments specifically cited by Smt. Zutshi are concerned, namely Union of India & Ors. v. Union Carbide India Ltd., and Union Carbide Co. Ltd. v. Assistant Collector of Central Excise & Others, while they generally support the proposition that duty is leviable even on goods captively consumed, they are more on the point that an article does not have to be sold or even to have a general marketability in order to be considered as "excisable goods". There are however, more pointed observations in some other judgments, to which we shall now advert, making it clear that they have reference to the wording of Rules 9 and 49 as they stood on 18-2-1976, that is, before the retrospective amendments made in 1982. 31. The judgments we have in mind are five in number. The first (referred to for convenience as "the Nirlon Case") is a judgment dated 30-4-1970 of the Bombay High Court in the case of Nirlon Synthetic Fibres and Chemicals Ltd., in Misc. Petition No. 491 of 1964. The second (referred to for convenience as "the J.K. Synthetics Case") is a judgment dated 28-8-1970 of the Delhi High Court in the case of J.K. Synthetics Ltd., Kota (Rajasthan), in Writ Petition No. 115....
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....eme of the Act and the Rules for the first time only in May, 1968, and with effect from 1-6-1968. In view of this, he held that after the 31st May, 1968, all manufacture of the petitioner company would have attracted duty (despite the fact of having been used in a continuous process), but for the fact that on a construction of Item 15A he had held that the polymer chips did not fall within that item. 33. In the J.K. Synthetics case, the question was again whether polymer chips produced by the petitioner company were covered by Item 15A of the Central Excise Tariff and whether the petitioner company was liable to pay duty under the said item. The learned Judge held that the polymer chips were not covered by the above-mentioned item of the Central Excise Tariff. The petitioner company had also advanced the contention that in order to attract excise duty there must be removal of the excisable goods and that as the polymer chips were never removed within the meaning of the Central Excises and Salt Act or the Rules thereunder, they were not liable to payment of any excise duty. The attention of the learned Judge was also drawn to the judgment of the Bombay High Court in the Nirl....
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....oods are never removed. The petitioner has not disputed that for some time it was importing polymer chips (Ultramid BS) and was using it for the manufacture of Nylon 6 yarn. This shows that these processes are separate and that there is removal from a part of the premises when the polymer chips are taken to the other part of the premises for the purpose of further manufacture of Nylon 6 yarn. The whole argument of the learned Counsel for the petitioner seems to hinge on the fact that one import licence was obtained for the plant and further that the same building houses the plant for the manufacture of Polymer Chips and for the manufacture of Nylon 6 yarn. Even here of course, it is not in the same part of the room both these processes are carried on. It is on an admitted fact that polymer chips which are put in the airtight containers are sent to another part of the premises where the process for the manufacture of Nylon 6 yarn is carried on. The removal of polymer chips would attract the Excise duty. The mere fortuitous chance of both the processes being available in one place or building cannot result in the Polymer Chips which may be excisable goods not being subject to a levy ....
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.... amount to removal within the meaning of Rule 49 read with Rule 9. The relevant observations of the High Court are reproduced below:- "Rule 9, which we have read earlier, in terms lays down that no excisable goods shall be removed from any place where they are produced, or any specified premises appurtenant thereto, whether for consumption, export or manufacture of any other commodity in or outside such place until the excise duty leviable has been paid. The Rule thus contemplates the citus of manufacture as the place from where removal has to take place whether for consumption, export or manufacture of any other commodity. It obviously makes no reference to the plant or equipment. But where there are two distinct plants within the same factory premises removal can take place either outside the factory premises or within the factory premises if the product obtained by working of one plant is sent to another plant for obtaining another product. There can be no removal of a product within the plant itself so long as the product is in the process of manufacture. There can be removal only if the product goes out of one stream of production into another stream of production or if the....
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....ch such goods are manufactured. At any rate the case of the petitioner is that the whole of the premises which comprise both the plants making calcium carbide and acetylene gas are its factory. It is not contended by the respondent that the calcium carbide plant constitutes a separate factory and the acetylene gas plant constitutes another factory. It cannot be said, therefore, that the so-called calcium carbide made by the petitioner is removed from the factory in which it is made. A perusal of Rules 9 and 49 makes it clear that the question of collection of any excise duty cannot arise unless and until the goods are removed from the factory." 36. We have not been able to find the judgment the authorities of any cited by the petitioners to support the contention that there was no `removal' of the goods from the factory and therefore duty was not chargeable, or the counter-arguments advanced on behalf of the respondents. We do not also find any reference to the judgment in the Nirlon case in the J.K. Synthetics case, and the Caltex case, in which the question of "removal" had been discussed at great length. It may be that the Hon'ble High Court did not consider it necessary....
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.... the removal from the place thus specified in the licence in question that is the place referred to in Rule 9. Once this position is clearly appreciated in the light of the licensing procedure and it is borne in mind that each licence has to specify under the Rules and the place where excisable goods are to be manufactured, it is obvious that its removal from the place mentioned in the licence which is material and not removal from the larger compound of the factory where excisable goods are consumed for production of further articles which may or may not be excisable goods. * * * * 14. In our opinion it is obvious from the scheme of the Rules and particularly in the light of the language of Rule 9 read in the context of licensing procedure and Rules relating to licences issued to manufacturers of excisable goods, that excise duty has to be collected and paid by the manufacturer concerned, when yarn is removed from the spinning department to the weaving department. This conclusion gets support from the language of proviso to Rule 52A(2). * * * * 15. Rule 9 applies to place where excisable goods are manufactured and not a factory and if the question of intermed....
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....ts conclusion from two judgment of the Supreme Court. It is true that in the D.C.M. case in Delhi High Court had come to the opposite conclusion, and it is also true that the judgment in the D.C.M. case is subsequent to these in the J.K. Synthetics and the Caltex cases of the same High Court. However, we have already pointed out that in the D.C.M. case, the question of the removal has been mentioned only briefly, and there is no reference in that judgment to either the Nirlon judgment or the J.K. Synthetics judgment or the Caltex judgment, and no indication that the fact of different view having been previously taken by the same High Court was brought to the notice of the Delhi High Court. Further, in the D.C.M. judgment the deciding factor seems to have been the law relating to the marketability of calcium carbide, in the light of which it was held that the calcium carbide manufactured by the petitioner company was not marketable and therefore not excisable. The reference to removal seems to be of an incidental nature. In the appeals before us there is no such ground that the yarn manufactured by the appellants was not itself marketable. 39. Thus, on a very careful study o....
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....he Industries (Development and Regulation) Act has the effect of making the cess leviable only if there is both manufacture and removal, and also where there is to be a sale of the goods. We should observe that the necessity for a sale has not been accepted by either the Patna High Court or the Calcutta High Court, the latter having given a long list of judicial authorities to show that sale is not a necessary ingredient to justify the levy of duty. As regards the point that the charge is on manufacture combined with removal, we are inclined to agree with Smt. Zutshi that the explanation only has reference to the manner of collection of the duty, and deals with the value to be adopted for that purpose. As pointed out by Smt. Zutshi, the words "capable of being sold" make it clear that actual sale is not a necessary ingredient. The argument based on the reference to "the time of their removal" would also not survive, if the word "removal" is held to include (as, having regard to the overall effect of various judicial decisions, we think it must) captive consumption within the factory. 42. For these reasons, and having given the most anxious consideration to the various autho....